Help on Bad Debt


L

Lynne's News

One of my customer will not be paying his invoice back in October 2004.

How do I record this as a bad debt?

Thanks, Lynne
 
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L

Laura

Lynne's News said:
One of my customer will not be paying his invoice back in October 2004.

How do I record this as a bad debt?

Thanks, Lynne
Create an expense account called Bad debt. Then create an item pointing to
that account. Issue a Credit memo that uses the Bad Debt item and apply it
to the original invoice. Your income still shows the original invoice and
the offset is posted to the Bad Debt expense account.
 
L

Lynne's News

I posted a journal entry debited the Bad Debt and then credited the
accounts receivable, in the name column I used the customer's name for both
entries.

Why is my Accounts Receivable still showing the invoice?

When I go to history on the customer, balance shows as 0.00.
 
N

none

Now go to receive payments, and apply the credit to the invoice you want
to write off. The AR won't show the invoice after the credit & invoice
are matched up.
 
L

Lynne's News

When I post it in the Receive Payments and I applied the credit, my only
question is where do I deposit it?
Cause I shouldn't be paying taxes on this one cause the Customer never paid
us.
 
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L

Laura

The credit & debit net to zero so it does not matter where you deposit it.
So you can deposit to your bank account if you wish. BTW, it is the income
account that will impact taxes and not your bank account.
 
L

Lynne's News

I shouldn't be paying taxes for this customer. He never paid us. It has
increased my income account therefore I will be paying taxes for this
customer so how do I correct this?
 
L

Laura

This depends on whether you are Cash or accrual basis. For cash basis you
would post the Debit to Income instead of the Bad Debt expense. Per the IRS:
A "cash method" taxpayer should not have a bad debt expense because he/she
has never received payment for the services that have already been rendered.
Thus, no income has been reported on such services.

An "accrual method" taxpayer may have bad debts generated by non-payment of
services provided wherein the income has been reported.

For accrual accounting the instructions that we gave you are correct and you
(indirectly) won't pay taxes on it.

Here's the accounting:

original sale:

Debit A/R $100
Credit Income $100

Write off to Bad Debt;

Debit Bad Debt expense $100
Credit A/R $100

Now A/R is zero and the customer does not show a balance anymore. Income
still shows the sale which is correct. The net income for tax purposes is
Income - Expense=0 so you are ok. I always thought that you would reduce
your income/sale account for the lack of payment but the IRS says no since
you must recognize the income but also must show the reduction via an
expense account.
 
B

Bob Williams

I always advice my clients to deposit these payments to the bank
account they use most so that it can be reconciled during a regular
bank reconciliation. It means that the $0 payments do not keep coming
back to haunt them during either banking (making deposits) or in future
bank reconciliations.

Bob Williams
 
S

Stephanie Serba

OK, giving a GST only Canadian situation as example:

Original sale:

Debit AR 107.00
Credit Revenue 100.00
Credit GST Pay. 7.00


Write off: (I do this through a QB General Journal entry) since I find
setting up Bad Debt as a line item and the issuing a credit note a big,
multistep pain in the butt.

Debit Bad Debt Expense 100.00
Debit GST Payable 7.00
Credit AR (cust name) 107.00


THEN, go to receive payments, and apply the GJ apply the AR credit to the
outstanding invoice. The tax collected would be due during the period during
which it was charged, but you would get it back during the period during
which it was written off. I ususally do this dated December 31st the year it
is apparent it will not be paid. EG. your customer was billed in October
2004, I would write it off December 2004 (providing you have not remitted
your sales tax for that period, and it appears on your 2004 tax return as a
Bad Debt expense). Otherwise, date the write off for the most recent period
for which you have not yet remitted sales tax.


--
Stephanie Serba, AICIA
Partner, Durham Business Outsource
Accounting and Technology
www.dbo.ca
smserba <at> dbo <dot> ca
 
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A

Arno Martens

On Sat, 23 Apr 2005 18:02:43 -0400, "Stephanie Serba"
OK, giving a GST only Canadian situation as example:

Original sale:

Debit AR 107.00
Credit Revenue 100.00
Credit GST Pay. 7.00


Write off: (I do this through a QB General Journal entry) since I find
setting up Bad Debt as a line item and the issuing a credit note a big,
multistep pain in the butt.

Debit Bad Debt Expense 100.00
Debit GST Payable 7.00
Credit AR (cust name) 107.00


THEN, go to receive payments, and apply the GJ apply the AR credit to the
outstanding invoice. The tax collected would be due during the period during
which it was charged, but you would get it back during the period during
which it was written off. I ususally do this dated December 31st the year it
is apparent it will not be paid. EG. your customer was billed in October
2004, I would write it off December 2004 (providing you have not remitted
your sales tax for that period, and it appears on your 2004 tax return as a
Bad Debt expense). Otherwise, date the write off for the most recent period
for which you have not yet remitted sales tax.
How would you treat a 20.00 payment, received a year later from a
Trustee in Bankruptcy?

Debit (?) 20.00
Credit Bad Dept Expense 18.69
Credit GST 1.31
Arno
 
L

Laura

Arno Martens said:
On Sat, 23 Apr 2005 18:02:43 -0400, "Stephanie Serba"


How would you treat a 20.00 payment, received a year later from a
Trustee in Bankruptcy?

Debit (?) 20.00
Credit Bad Dept Expense 18.69
Credit GST 1.31
I would Debit bank account to recognize the money received. I believe your
credits are also correct. Or at least that's what I remember my accounting
teacher telling us.
 
L

Lynne's News

I did all that but when it comes to Receiving Payments, it shows that I
rec'd the money and my Personal Bank Account shows as in the plus?
 
L

Laura

You should be receiving a credit and a debit that net to zero. No money is
being deposited into your bank account with these transactions.
 
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L

Lynne's News

In the Customer: Job List It is now showing as -240.35
By the way I am using QB 2002 Basics
 
S

Stephanie Serba

Post the receipt as:

Debit bank 20.00
Credit Bad Debts 18.69
Credit GST 1.31


OR if you want to get really detailed, you can create an income account
called Recovered Bad Debts and use that rather than posting the credit to
Bad Debt.


--
Stephanie Serba, AICIA
Partner, Durham Business Outsource
Accounting and Technology
www.dbo.ca
smserba <at> dbo <dot> ca
 
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S

Stephanie Serba

I thought the payment was received FROM the trustee in bankruptcy?

If so, then the bank should show an increase in the balance of $20.00.


--
Stephanie Serba, AICIA
Partner, Durham Business Outsource
Accounting and Technology
www.dbo.ca
smserba <at> dbo <dot> ca
 

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